18. Reasonableness Review-Burden of Proof

The following sections address the reasonableness of post-2002 construction projects. For these projects, SGV has the burden of proof. SGV must demonstrate each project is used and useful, needed and constructed at a reasonable cost. In a few cases, need has been addressed to some degree in prior decisions.

For a project to be used and useful, it must be in use providing service to ratepayers. In addition, it must be built to meet the design parameters. Thus, if a project is supposed to perform at a certain level, but performs at a lower level because of inadequate design or construction, only those costs reasonably attributable to the lower performance level will be allowed in ratebase.

In order to demonstrate a project is needed, there must be an affirmative demonstration of the need. Such a demonstration may include, but is not limited to, examples of specific problems that have occurred or will occur, and how the project will provide the remedy. Another way to demonstrate need is to show specific benefits that will not occur without the project, or new governmental requirements that will not be met without the project. Mere claims of need are not sufficient.

Reasonableness of cost may be addressed in a variety of ways. One way is the use of competitive bids. If a project is put out for bid such that a reasonable pool of potential bidders is made aware of the opportunity, the resulting bids provide some indication of market prices. If a project is not put out for bid, then some other means is needed to demonstrate the reasonableness of the cost. Some ways to do this are the use of comparisons to other similar projects or well known publications that provide cost estimates for similar types of work.

The record shows that SGV does not have written guidelines for its use of competitive bidding. Having such guidelines would help ensure SGV uses a competitive bidding process when it is appropriate to do so. Therefore, SGV shall develop such guidelines and include them as an exhibit in the next GRC proceeding filed for either of its divisions. Such guidelines should include, but not be limited to, criteria for determining when competitive bidding should be used and how the competitive bidding process should be carried out.

In evaluating the reasonableness of a project, the applicant must demonstrate that its decisions were what a reasonable person with the necessary education and expertise would have made at the time based on the information that could and should have been available. The best indicator of the reasonableness of a decision is documentation prepared at the time the decision was made.

In this proceeding, SGV was well aware that the reasonableness of post-2002 projects would be reviewed. However, it made no affirmative showing in the exhibits served with the application regarding most projects. SGV stated at the PHC that its intent was to rebut any reasonableness arguments made by the other parties. At the PHC, a schedule was set for SGV to provide an affirmative showing. SGV was instructed to provide a list of all projects over $100,000. From that list, parties identified the projects they wished to pursue. SGV was then required to provide an affirmative showing on each of the identified projects. Parties then served their prepared testimony regarding the projects they intended to address and SGV provided rebuttal testimony. Subsequently, hearings were held addressing reasonableness. This process provided SGV with more than ample opportunity to meet its burden of proof.